File photo shows Tom Waters coming down from his tractor on his farmland in Orrick, Missouri, the United States, June 9, 2019. (Xinhua/Liu Jie)
The latest rate hike showed the Fed's willingness to "make the most disadvantaged groups pay the price for slowing a burst of inflation that they did not cause."
by Xiong Maoling, Matthew Rusling
WASHINGTON, Sept. 25 (Xinhua) -- For Tom Waters, a seventh-generation farmer in Orrick, Missouri, surging interest rates are a major concern these days.
"Most farmers work with an operating loan for crop inputs. Higher interest rate can stress farmers," Waters told Xinhua. The operating loan for his farm was 3.70 percent at the start of the year, but has risen to 6.25 percent, which means roughly 10,000 U.S. dollars extra interest payment if he borrows 500,000 dollars.
For Dan Martin, a retiree in Vermont in his early 60s, it has been difficult to navigate a turbulent market amid rising rates.
Martin told Xinhua he retired last year with over 1.5 million dollars, but the value of his portfolio has declined 40 percent. He said he needs to budget to cover living expenses for the next 30 years, as well as to leave an inheritance to his two adult children.
Waters and Martin are among those Americans whose lives are severely impacted by the U.S. Federal Reserve's massive rate hikes in recent months.
Photo taken on June 22, 2022 shows the U.S. Federal Reserve building in Washington, D.C., the United States. (Xinhua/Liu Jie)
Since March, the Fed has lifted interest rates for five times, including three consecutive 75-basis-point rate hikes in June, July and September, boosting the Fed's benchmark interest rate to a range of 3-3.25 percent.
Those moves by the Fed, signalling an increasingly hawkish path ahead, came as the Consumer Price Index in the country has remained at an elevated level of over 8 percent in the same period.
"The FOMC (Federal Open Market Committee) is resolved to bring inflation down and we will keep at it until the job is done," Fed Chair Jerome Powell said at a press conference on Wednesday afternoon.
However, this process to get inflation under control has already started to weigh on households and businesses. For ordinary Americans, soaring mortgage rates are one of the painful "side effects."
Freddie Mac, a government-sponsored mortgage company, said 30-year fixed-rate mortgage (FRM) averaged 6.29 percent last week, hitting the highest level since 2008. A year ago at this time, the 30-year FRM averaged 2.88 percent.
Analysts said the Fed's aggressive rate hikes have pushed up mortgage rates, with cooling housing markets for home buyers. But demand in rental markets has remained high, maintaining upward pressure on already soaring rent prices.
A house on sale is seen in Washington D.C., the United States on Dec. 12, 2021. (Photo by Ting Shen/Xinhua)
"Higher interest rates force people who could have afforded a mortgage earlier back into the rental market," Clay Ramsay, a researcher at the Center for International and Security Studies at the University of Maryland, told Xinhua.
Tina Jones, a private piano teacher, has had a rough time finding an apartment to rent. "It's as much as buying a house," she said of skyrocketing rents in the area around Washington D.C.
The national median asking rent for August was up 11 percent year-over-year to 2,039 dollars, climbing to a record high despite moderating growth. In Washington D.C., the median asking rent for August was 2,755 dollars, while in New York, it was 4,102 dollars.
Surging interest rates have also caused turmoil in the stock market. Like Martin, many Americans suffered loss of wealth.
Desmond Lachman, senior fellow at the American Enterprise Institute and a former official at the International Monetary Fund, estimated that since the start of the year, declining equity and bond market prices have resulted in the evaporation of around 12 trillion dollars in household wealth, which would likely curb consumption.
Pedestrians walk past a supermarket in Washington, D.C., the United States, on June 14, 2022. (Photo by Ting Shen/Xinhua)
Lachman told Xinhua that the Fed's hawkish monetary policy stance has already caused the bursting of the equity and credit market bubble, which is one reason to fear a "full-blown economic recession" in the next few months.
Another reason for concern is the acute difficulties already being experienced in the housing market, Lachman noted.
Dean Baker, senior economist at the Center for Economic and Policy Research, said in a recent article that the latest rate hike in September showed the Fed's commitment to fighting inflation, but it also showed its willingness to "make the most disadvantaged groups pay the price for slowing a burst of inflation that they did not cause."
"Just to cut through the euphemisms about an 'overheated' economy and abstract pain, what we are talking about with the Fed's rate hikes is throwing people out of work to put downward pressure on wages," said Baker. ■